Tax Residence – transition operational position

Interpretation Statement 14/01 replaces a number of items previously published by Inland Revenue, most notably “Income Tax Amendment Act (No 5) Rules 1989: New Residence Rules” (Public Information Bulletin No 180, June 1989) (PIB No 180).

The Interpretation Statement applies from 1 April 2014. This means that when a taxpayer is deciding whether they are a New Zealand tax resident who needs to file an income tax return for the tax year ended 31 March 2015 and later years, they need to consider the analysis contained in the Interpretation Statement, and apply it to the relevant tax year.

There may be some situations in which the new Interpretation Statement gives a different result from application of the earlier PIB No 180.

As Inland Revenue considers that the legal analysis contained in the Interpretation Statement represents the correct view of the law, taxpayers can ask Inland Revenue to apply the analysis contained in the Interpretation Statement to tax positions taken in earlier years. The Commissioner will apply the principles set out in the Standard Practice Statement on section 113 on a case by case basis to determine whether to amend past assessments. These are currently set out in“SPS 16/01 Requests to amend assessments” Tax Information Bulletin Vol 28, No 4 (May 2016).

Taxpayers who have taken a tax position in past years, correctly applying the analysis in PIB No 180, will not be required to alter the position they have taken for those past years. However, those taxpayers should apply the analysis set out in the Interpretation Statement from the date of issue going forward.

In circumstances where the legal analysis contained in the Interpretation Statement has already been applied to a taxpayer’s affairs (including where they are involved in a current dispute) Inland Revenue will continue to apply that analysis, and will not apply the approach in PIB No 180 to amend the previous position.

If you have reached a view on your tax residence under the approach in PIB No 180 and are unsure about how the Interpretation Statement might affect you, please see our Frequently Asked Questions below. These FAQs provide practical examples of the application of this transitional operational position.

If taxpayers or tax advisors have questions about this transitional operational position or the frequently asked questions, they can email Inland Revenue at [email protected]. Please do not send general residence queries to this email address.

FAQs Interpretation Statement 14/01 – Tax residence – Transitional operational position

Q1: I thought that I was no longer resident for New Zealand tax purposes because I will be gone for three years. Would I be resident under the approach in the Interpretation Statement?

A1: In the past some people have considered that if you are away from New Zealand for three years you will not be resident here. There is no ‘three-year away from NZ’ test in the legislation. All of your circumstances need to be weighed up to determine whether you are tax resident in New Zealand.

If you thought you were not resident because you would be away for a particular period of time, we recommend that you reconsider your position in light of the approach in the Interpretation Statement. This is particularly so if there is a dwelling in New Zealand that you could potentially live in.

Q2: I concluded that I am not resident for New Zealand tax purposes under the approach in PIB No 180. Do I need to do anything as a result of the publication of the Interpretation Statement?

A2: The Interpretation Statement applies from the date 1 April 2014.

Taxpayers who have taken a tax position in past years correctly relying on the approach in PIB No 180 are not required to alter the position they have taken for those past years, but those taxpayers should apply the analysis set out in the Interpretation Statement from 1 April 2014 going forward.

As noted in the answer to Question 1, there is no ‘three-year away from NZ’ test in the legislation. A taxpayer who concluded that they were not resident in New Zealand simply because they would be away from New Zealand for a particular period of time, without weighing up all of the circumstances, may wish to reconsider their conclusion.

If, during your absence from New Zealand, there is a dwelling in New Zealand that you could live in and you have strong connections to New Zealand, then you may wish to speak to Inland Revenue or a tax advisor regarding your position.

Q3: I do not have a dwelling in New Zealand, but thought I was resident under the approach in PIB No 180. Would I be resident under the approach in the Interpretation Statement?

A3: If there is not a dwelling in New Zealand that you could live in on an enduring rather than temporary basis, you would not be resident under the permanent place of abode test. However, bear in mind that to be non-resident you will also need to:

• have been out of New Zealand for more than 325 days in total in a 12-month period;
• not have been in New Zealand for more than 183 days in total in a 12-month period since satisfying the 325-day rule; and
• not be absent from New Zealand in the service of the Government of New Zealand.

Q4: I live overseas and Inland Revenue has told me my student loan is / is not interest-free; does the new Interpretation Statement change this?

A4: No. Some of the situations where student loans are interest-free even when you are overseas require (among other things) that you are tax resident in New Zealand. Inland Revenue has considered all applications for interest-free student loans on the basis of the view in the Interpretation Statement, so your position will not have changed as a result of the publication of the statement.

Q5: I live overseas and have a rental property in New Zealand, does this mean I am tax resident in New Zealand?

A5: You will not be tax resident in New Zealand solely on the basis of having a rental property here. One of the residence tests for individuals is the “permanent place of abode” test. A property that has always been held as an investment would not commonly be a person’s permanent place of abode, however, in some circumstances it could be. Your overall connections with the property and with New Zealand would need to be weighed up. We recommend that you seek advice if you are unsure about your tax status.

Q6: What if in previous years the application of the Interpretation Statement would have meant that I was a non-resident?

A6:As Inland Revenue considers that the legal analysis contained in the Interpretation Statement represents the correct view of the law you can ask Inland Revenue to apply the analysis contained in the Interpretation Statement to tax positions taken in earlier years. The Commissioner will apply the principles set out in the Standard Practice Statement on section 113 on a case by case basis to determine whether to amend past assessments. These are currently set out in “SPS 16/01 Requests to amend assessments” Tax Information Bulletin Vol 28, No 4 (May 2016).

Q7: If I have already had the legal analysis in the Interpretation Statement applied to my circumstances, can I ask for my position to be reconsidered applying the analysis in PIB No 180 because the Interpretation Statement applies from 1 April 2014?

A7: No. The Commissioner considers that the legal analysis contained in the Interpretation Statement represents the correct view of the law. Any request for a reassessment will be considered on the basis of the analysis in the Interpretation Statement.

Q8: Applying the Interpretation Statement I have determined that I am a not a New Zealand tax resident and therefore I do not have to file a tax return. Do I have to revisit this decision every year?

A8: No, If you have applied the Interpretation Statement correctly then unless your circumstances have changed you will remain a non-resident for tax purposes.

Q9: I no longer reside fulltime in New Zealand but applying the Interpretation Statement I have determined that I am a New Zealand tax resident. Do I have to revisit this decision every year?

A9: Your circumstances may change meaning that you are no longer a New Zealand tax resident. Therefore, it is advisable that you regularly consider your tax residency status.

Q10: Where else can I get information on tax residence?

A10: There is information on tax residence on Inland Revenue’s website. Alternatively, if you are unsure how the Interpretation Statement applies to you, contact your tax advisor.

If taxpayers or tax advisors have questions about the transitional operational position or the frequently asked questions, they can email Inland Revenue at [email protected]. Please do not send general residence queries to this email address.